Term Paper on Wage Inequality

Since around the beginning of the 1970s, one of the main concerns of development economists has been the relationship between economic development and income distribution which had been largely neglected before.

Up to the 1960s, most development economists devoted their whole attention to how to enlarge the size of the pie rather than how to divide it. The notion that unequal distribution of income is even necessary for the attainment of the growth of the pie was sometimes maintained by economists or policymakers of less developed countries (called LDCs hereafter).

A sort of ‘trickle-down’ was believed to happen after some period of economic development which would benefit everyone including the least privileged. Years of effort, however, by LDCs to enlarge the pie turned out to be of little help in alleviating the fate of the majority of people at the bottom of the social ladder. The extreme poverty among the substantial portion of people in LDCs would not go away easily. In some countries, especially in Latin America, the distribution of income has, in fact, worsened, instead of improving, during the development process.

Partly based on the recognition of these persisting problems, there was a noticeable change in the basic strategy of development around the beginning of the 1970s. Income distribution is no longer of negligible importance in LDCs. Nov; it has become recognized as an essential policy objective in the development planning of many LDCs, sometimes as important as the growth of income itself.

Some boost for the turn of the direction in the study of development economics seems to have come from what has been going on in other fields of economic doctrine. Independent advancements at the same time in at least two other fields in economics seem to have helped such studies move ahead. One is the increasing concern among theoretical economists over the topic of the personal income distribution.